I’ve received many inquiries from feedlot operators and cow-calf producers with regard to the price outlook for barley. During the 2017-18 crop year, the barley market was contending with lower production and a historically tight carry-out. The function of the market was to ration. Domestic prices were at a premium to export values to curb offshore movement. Secondly, the domestic market has to trade higher to encourage imports of U.S. corn. For 2018-19, the fundamentals will remain rather snug although supply projections are sharply higher than earlier estimates. The tighter fundamental structure is largely due to the year-over-year increase in offshore movement. Production in other areas of the world will have a larger influence on the Canadian domestic market; therefore, producers will have to pay more attention to world crop conditions and trade flows for corn and barley. In this issue, I will provide a brief overview of the Canadian barley and U.S. corn supply projections. I’ll then discuss three major factors that will influence the domestic barley market.
Statistics Canada’s June crop survey had barley acres at 6.5 million, up from the March estimate of 6.0 million and sharply above year-ago seeded area of 5.8 million acres. Using a traditional abandonment rate and an average yield of 72 bushels per acre, production is expected to finish around 9.2 million mt, up from the 2017 crop size of 7.9 million mt.
U.S. farmers planted 89.1 million acres of corn this spring, up from the March USDA estimate of 88.0 million acres but down from the 2017 seeded area of 90.2 million acres. On the July WASDE report, the USDA kept their corn yield estimate at 174 bushels per acre, unchanged from their June report. However, traders believe the U.S. corn yields could be 177 bushels per acre to as high as 179 bushels per acre because crop ratings have been very high. U.S. corn production is expected to finish in the range of 370 to 372 million mt, which would be similar to the 2017 crop of 371 million mt.
There are three major factors that will influence the price of feed barley:
First, export demand for Canadian barley has potential to reach 2.4 million mt in 2018-19, up from the 2017-18 export projection of 2.050 million mt. This is largely due to increased demand from China for feed and malt barley. The tariffs on U.S. sorghum have increased their import requirements for feed barley. Usually, Australia satisfies most of the Chinese demand. However, this year, Australia’s supplies are also historically tight and the upcoming crop is uncertain due to drought-like conditions.
Canadian exports will also be higher due to lower production in other major exporting countries. Russian barley production is expected to be down sharply from year-ago levels due to drier conditions in the Volga and southern districts. Ukraine barley production is also expected to finish down from last year due to adverse growing conditions in the southern regions and ongoing unrest in the eastern region. Northern Europe has also been plagued with abnormal dryness and above-normal temperatures resulting in lower malt and feed barley production. At the time of writing this article, export values were high enough to pull barley offshore from the central and northern regions of Alberta and Saskatchewan. World barley stocks are rather snug from a historical perspective.
Second, the quality of wheat and barley crop will determine the total supply of feed grains in Western Canada. Last year, favourable harvest conditions resulted in 60 per cent of the barley crop grading in the malt category. At the same time, 95 per cent of the wheat and durum crops will be milling quality. At the time of writing this article, traders were factoring in a very similar situation. Farmers with malt barley will hold out for malt prices which are currently $1/bushel premium over feed in central Saskatchewan. Farmers will only sell milling quality wheat into feed channels in the latter half of the crop year. This could result in a sudden jump in feed barley prices after the harvest period.
Finally, the world coarse grain fundamentals are historically tight, despite the larger than expected U.S. corn crop. Remember that Argentina and Brazil experienced drier conditions this past year resulting in lower production. Next fall, Argentina and Brazilian farmers will increase soybean acres at the expense of corn. During the spring of 2019, the corn market will have to encourage acreage in the Northern Hemisphere.
In conclusion, I’m expecting the barley market to make a seasonal low during the harvest period. Later in fall, barley prices are expected to percolate higher. Favourable harvest conditions will result in tighter supplies of feed barley. It also looks like 85 to 90 per cent of the Canadian wheat crop will grade in the top two milling categories. Canadian barley exports will experience a sharp year-over-year increase resulting in lower supplies for the domestic market. China will have larger demand for malt and feed barley. Lower production in other major exporting countries will also result in stronger world prices.